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Enhancing the Liquidity of U.S. Treasury Securities in an Era of Surpluses

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  • Paul Bennett
  • Kenneth Garbade
  • John Kambhu

Abstract

This paper presents three proposals intended to enhance liquidity in the market for U.S. Treasury debt: making principal and interest STRIPS maturing on a common date fungible with each other, aligning the maturity of 2-year debt with either bill maturities or the maturities of longer-term debt, and establishing a facility to allow market participants to exchange (with the Department of the Treasury) single-payment securities with similar, but not identical, maturities. The proposals would enhance liquidity by improving the substitutability of identical and very nearly identical Treasury liabilities, and by increasing the integration of the markets for bills, notes, bonds and STRIPS. The proposals would be complementary to, rather than a substitute for, the initiative to buy back outstanding debt announced in August 1999.

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Bibliographic Info

Paper provided by New York University, Leonard N. Stern School of Business- in its series New York University, Leonard N. Stern School Finance Department Working Paper Seires with number 99-083.

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Date of creation: 23 Nov 1999
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Handle: RePEc:fth:nystfi:99-083

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Postal: U.S.A.; New York University, Leonard N. Stern School of Business, Department of Economics . 44 West 4th Street. New York, New York 10012-1126
Phone: (212) 998-0100
Web page: http://w4.stern.nyu.edu/finance/
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  23. Yakov Amihud & Haim Mendelson & Beni Lauterbach, 1997. "Market Microstructure and Securities Values: Evidence from the Tel Aviv Stock Exchange," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-004, New York University, Leonard N. Stern School of Business-.
  24. Sarig, Oded & Warga, Arthur, 1989. "Bond Price Data and Bond Market Liquidity," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(03), pages 367-378, September.
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Cited by:
  1. Arnaud Marès, 2002. "Market liquidity and the role of public policy," BIS Papers chapters, in: Bank for International Settlements (ed.), Market functioning and central bank policy, volume 12, pages 385-401 Bank for International Settlements.
  2. Patricia S. Pollard, 2001. "The creation of the Euro and the role of the dollar in international markets," Review, Federal Reserve Bank of St. Louis, issue May, pages 17-36.
  3. Michael J. Fleming, 2003. "Measuring treasury market liquidity," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 83-108.
  4. Fleming, Michael J, 2002. "Are Larger Treasury Issues More Liquid? Evidence from Bill Reopenings," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(3), pages 707-35, August.
  5. Kenneth D. Garbade & Matthew Rutherford, 2007. "Buybacks in Treasury cash and debt management," Staff Reports 304, Federal Reserve Bank of New York.
  6. Michael J. Fleming, 2001. "Financial market implications of the federal debt paydown," Staff Reports 120, Federal Reserve Bank of New York.
  7. Antzoulatos, Angelos A., 2002. "Benchmark yield undershooting in the E.M.U," HWWA Discussion Papers 191, Hamburg Institute of International Economics (HWWA).

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